The Financial Conduct Authority is set to crackdown on misleading adverts that promote investment in high-risk products.
Under the stronger rules, firms approving and issuing marketing must have appropriate expertise and firms marketing some types of high-risk investments will need to carry out more robust checks to ensure consumers and their investments are well matched.
Firms will also need to display clearer and more prominent risk warnings, while incentives to invest such as “refer a friend” bonuses will be banned.
In a policy statement published on 1 August, the FCA said it wants to avoid consumers investing in high-risk products which are not aligned with their risk tolerance and are unlikely to meet their needs. It warned that investing in such products can lead to unexpected and significant losses for consumers and undermine confidence in investing more widely, making it harder for all firms to raise capital.
According to the regulator, the issue has become more pressing amid rising inflation, which has resulted in negative real returns across many mainstream investments.
In its statement, the FCA said it is concerned that too many consumers are just “clicking through” and accessing high risk investments without understanding the risks involved.
The new rules build upon the FCA’s interventionist approach to tackling poor financial promotions. In the 12 months to the end of July 2022, a total of 4226 adverts were amended or withdrawn after the FCA intervened.
Sarah Pritchard, executive director, markets at the FCA, said the watchdog wants people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk.
Pritchard said: “Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.
“This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”
However, the new rules will not apply to cryptoasset promotions, which currently sit outside the FCA’s remit. In January, the Treasury confirmed its intention to bring certain cryptoassets into the scope of the financial promotion regime and the FCA said it plans to make final rules for cryptoasset promotions once the relevant legislation has been made by the Treasury.
In addition, the FCA has also launched a consultation which could see Long Term Asset Funds marketed to a wider group of retail investors and schemes in future.
